UBS restructuring shows resolve

10,000 jobs on the line ... UBS chief executive Sergio Ermotti says 2500 jobs will be eliminated in Switzerland, slightly more than that in the United States, and the rest in the United Kingdom.
Photo: Bloomberg

If anyone doubted the steely determination of Swiss bank UBS to shake up its operations, such reservations were quickly dissipated overnight when scores of UBS traders found themselves locked out of their London offices.

Overnight, UBS confirmed that it would slash its risk-weighted assets by around 100 billion Swiss francs ($US107 billion) by the end of 2017, and eliminate about 10,000 jobs (or 15 per cent of its headcount) as part of one of the most far-reaching restructurings the banking industry has witnessed since the financial crisis.

The restructuring will see UBS radically shrink most of its investment bank, and virtually quit all its fixed-income activities. Instead, the bank will concentrate on its highly-regarded wealth management operations, as well as continuing to serve its corporate and retail clients.

UBS chief executive Sergio Ermotti said that the decision to move ahead with the restructuring had been made several months ago, when it became clear that the global economy was deteriorating, and that regulators were getting stricter, and that tougher capital requirements were permanent.

He said that the bank’s London operations would be hardest hit by the decision. Around 2500 jobs will be eliminated in Switzerland, slightly more than that in the United States, and the rest in the United Kingdom.

By 2015, UBS expects to save about 5.4 billion Swiss francs annually, mainly by reducing staff costs , up from the bank’s 2 billion francs a year target set last year. According to UBS, this will help boost the bank’s return on equity to at least 15% from 2015, up from 8.6% in 2011.

Rival banks have claimed that several factors forced UBS to adopt its radical restructuring stance. In the first place, they argued, UBS had never developed sufficient scale to run a profitable global trading operation.

In addition, they noted that UBS has suffered heavy losses in its investment banking division in recent years. The bank incurred more than $50 billion in losses from its fixed income operations during the financial crisis, which brought the bank to the brink of collapse.

Related Quotes

Company Profile

More recently, UBS suffered the largest trading loss in British history, after an alleged rogue trading scandal left the bank nursing a $2.3 billion loss. On Monday, the alleged rogue trader, Kweku Adoboli, told a London court that the culture at the bank had changed, and that he had been encouraged to push boundaries.

UBS has also been caught up in the international probe into the possible manipulation of the London interbank offered rate, or Libor, which has also snared other major US and European banks.

Overnight, the giant German bank Deutsche Bank emphasized that it was pursuing a very different strategy, and said that it expected to benefit from UBS’s retreat from the fixed interest market. “As the market leader in fixed income, a reduction in capacity is always welcome," the bank’s chief financial officer, Stefan Krause said. Deutsche reported that a 67 per cent jump in revenues from its fixed income trading in the third quarter, which helped the bank report a 20 per cent lift quarterly pre-tax profits to €1.1bn.

But although Deutsche was bullish about the future of its trading activities, analysts expected that, increasingly, more banks would be forced to scale bank. They note that, with banking regulations and capital constraints continuing to tighten, few investment banks will be able to generate the consistently high returns from trading that shareholders now demand.